Student Loan Forgiveness

by Tom Yamachika, President, Tax Foundation Hawaii

If you have a student loan and you’re thinking that you might be able to get forgiveness of that loan by working for the government or for a nonprofit, better watch out because there are changes coming to that program.

Recently, the U.S. Department of Education adopted a final rule saying that a government entity or nonprofit with a “substantial illegal purpose” can be ruled ineligible.  

A substantial illegal purpose under the final rule is defined as

(i) aiding or abetting violations of 8 U.S.C. 1325 or other Federal immigration laws;

(ii) Supporting terrorism, including by facilitating funding to, or the operations of, cartels designated as Foreign Terrorist Organizations consistent with 8 U.S.C. 1189, or by engaging in violence for the purpose of obstructing or influencing Federal Government policy;

(iii) Engaging in the chemical and surgical castration or mutilation of children in violation of Federal or State law;

(iv) Engaging in the trafficking of children to another State for purposes of emancipation from their lawful parents in violation of Federal or State law;

(v) Engaging in a pattern of aiding and abetting illegal discrimination; or

(vi) Engaging in a pattern of violating State laws [prohibiting Trespassing; Disorderly conduct; Public nuisance; Vandalism; or Obstruction of highways].

For example, if a “Sanctuary City” has policies that limit cooperation with federal immigration enforcement to protect undocumented immigrants, that city may well be declared an ineligible employer under the new rule.  Cities, counties, and other jurisdictions on this map might be declared ineligible.

Or how about if a nonprofit (including a college or university), city, or state has a DEI (diversity, equity, inclusion) policy that calls for some type of affirmative action to remedy past racial discrimination?  Bzzt!  That would be illegal discrimination against white people.  Kamehameha Schools?  OHA?  Department of Hawaiian Home Lands?  Better watch out.

How about a nonprofit whose members block the entrance to a harbor, or a road, in order to make their point?  Boom!  That could be an organization engaging in a pattern of violating state laws.  It’s strange that only certain state laws, violations of which are usually classified as minor offenses, are mentioned in this disqualification.

The same fate could befall a nonprofit or government allowing or providing gender-affirming care for the LGBTQ population under age 19.  That would be classified under the final rule as engaging in the surgical or chemical castration or mutilation of children.

The basic policy driving these changes, as expressed in an Executive Order, appears to be that if the President doesn’t like what a state, locality, or nonprofit is doing, the government can and will cut off not only direct aid to the organization but also its employees.  The Administration’s position is that it has the power to set fundamental public policy for the country, and that it has the right and duty to stop federal dollars from going to causes that don’t align with that policy.

Not surprisingly, a coalition of 22 states, led by California, Colorado, Massachusetts, and New York and including Hawaii, is suing in Massachusetts federal court to block implementation of this rule.  The basic premise of the suit is straightforward:  Congress established the student loan forgiveness program, Congress said that eligible employers included governments and nonprofits, Congress didn’t make exceptions, and now the Administration is trying to add conditions that are not provided in the law.

We will see how the fight plays out in the months ahead.